1. Field of the Invention
The invention generally relates to systems for management of financial records. More particularly, the invention relates to a method and system for MICR (magnetic ink character recognition)-based duplicate detection and management.
2. Background Information
The first standards for electronic data interchange (EDI) were published in 1968. Business entities, looking for ways to reduce the expense of transaction processing and improve efficiency, have recognized the advantages offered by electronic transaction processing and have been steadily moving away from hard-copy paper transactions. In many industries, electronic transactions have virtually replaced paper.
An early result of the efforts of financial institutions to find ways of facilitating paperless check transactions was the AUTOMATED CLEARINGHOUSE (ACH) NETWORK, a secure payment transfer system that now connects all U.S. financial institutions. The ACH NETWORK now acts as the central clearing facility for all Electronic Fund Transfer (EFT) transactions that occur nationwide in the United States. The ACH NETWORK is what is responsible for allowing such services as online bill pay, direct deposit, and direct debiting, and has proven to be a viable and cost effective alternative to the use of paper checks.
Accounts receivable check conversion (ARC), which allows business entities that receive consumers' checks at remittance and lockbox locations to convert them into electronic ACH payments, is used for consumer bill payments such as credit cards, mortgages, insurance premiums, and telecommunications and utility bills. In a similar fashion, the POP (point-of-purchase) application permits a check presented in-person to a merchant for purchase to be presented as an ACH entry.
While financial institutions and consumers have benefited greatly from EFT, ACH, ARC and POP, problems arise with check conversion when a merchant converts a check into an ACH payment, and then, also submits the paper check for payment. The result is a double-debit against the consumer account.
The Check Clearing for the 21st Century Act (Check 21) became law in 2003, and went into effect in 2004. Check 21 is designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation—conversion of a check to an electronic debit or image of the check. The law facilitates check truncation by creating a new negotiable instrument called a substitute check, often called an IRD (image replacement document) which permits banks to: truncate original checks; process check information electronically; and to deliver substitute checks to banks that want to continue receiving paper checks. A substitute check is the legal equivalent of the original check and includes all the information contained on the original check. It is envisioned that, ultimately, banks will simply exchange images of financial instruments and the MICR line data, doing away even with substitute checks.
In the developing environment, with such a large variety of payment types and delivery processes—IRD (image replacement documents), ECL (electronic cash letter), ARC, ATM (automated teller machine), ACH and corporate image deposits—it is increasingly likely that the same transaction will be presented for payment more than once. Checks can be converted to IRD or Image Presentment files which can be presented multiple times and across multiple channels. Check conversion to ACH presents a risk of duplicate presentment as the paper items can make their way into the payment stream via other channels.
The problem of cross-channel duplicate items has been recognized in the banking industry and some progress has been made toward identifying the duplicate items.
Duplicate detection in general involves estimating similarity of electronic documents and then taking steps to identify documents that are either identical or substantially identical.
One approach involves calculating a hash value for each document and comparing hash values. If the hash values are equal, the documents are determined to be duplicates. By comparing hash values, it is possible to identify documents that are identical to each other based on their having identical hash values.
Another approach involves the use of similarity metrics to determine the similarity of documents to each other. Using this approach, even if they do not match precisely, documents whose semantic similarity, as indicated by a computed similarity metric, exceeds a predetermined threshold are said to be duplicates.
Yet another approach, instead of comparing whole documents, isolates significant terms from the documents and uses the significant terms to create a digest for each document. If there is a collision between the digests of two documents, the documents are determined to be duplicates of each other.
Distributed check capture and Check 21 both pose an increased risk of creating and/or posting duplicate debits in either a single channel or across multiple channels. In the traditional paper processing model this risk was much smaller due to a dependency on the receipt of physical paper to facilitate posting to the customers account. In the multi-channel environment, duplicate postings have conventionally been identified after they occur, either by minimal day two reporting or more often through notification by the impacted customer.
Some progress has been made in identifying duplicate IRDs. Currently, however, duplicates are only identified after posting via posting reports or after receipt of a customer call. Thus, the problem of identifying duplicate items across payment channels on day 1, prior to posting, remains. The problem of double postings seriously impacts the banking industry because of its deleterious effect on the relationship between the financial institution and its customers. Additionally, correction of the errors imposes a significant cost. Thus far, there exists no comprehensive solution to the problem.